IN TOO DEEP Analysis for Institutional Investors of Critical Water Security Issues Facing the Metals and Mining Sector

IN TOO DEEP Analysis for institutional investors of critical water security issues facing the metals and mining sector

CDP Metals and Mining Report 2019 CONTENTS

4 About this report

4 Key findings

5 Introduction

6 A history of financial impacts

8 Operating in this sector remains risky business

9 Mitigation costs are likely to rise

10 The tailings dam issue

12 The evolution of water risk mitigation strategies

15 Conclusion

16 References

18 Appendix I – Engagement topics per company analyzed

To read 2018 company responses in full and to access a database of tailings dam data, please access CDP’s Investor Portal

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CDP has been collecting water-related data from companies across the metals and mining Companies involved in the extraction, refining, processing and supplying of minerals are sector for more than a decade. Here we present five year trend analysis of corporate water “on the front line” in the struggle for a water secure future. For companies in the metals security data from 54 of the world’s largest listed mining companies. These companies and mining sector, no water means no business. Access to water and the ability to store have a total market capitalization of US$1.04 trillion and employ 1.8 million people and discharge it, are critical factors in all mining developments and operations, making this worldwide. sector one of the most water intensive.

This report builds on a sectoral study published by CDP in 2013 – short and long-term resilience. In order to facilitate effective dialogue Principally, water is used to extract the raw material from the ground, The water-related decisions these companies take also have Metals and Mining: A Sector Under Water Pressure. Here we analyze and engagement between investors and companies, we have to extract the desired element from the raw material and in the implications for those financial institutions fuelling them. It is perhaps 5 the evolving implications of water security3 for the sector, shedding provided a snapshot of each company response in Appendix I. CDP transport and storage of excess slurry among other processes . In unsurprising therefore, that water management has emerged as one light on how these companies continue to be affected by water- extends its thanks to the Alcoa Foundation, which made this study the United States for example, the U.S Geological Survey estimates of the preeminent sustainability issues within the sector and one related issues and how they are responding, in order to build both possible. the sector represents 1% of total countrywide withdrawals and in receiving greater levels of investor scrutiny. The recent tailings dam some states, such as Texas, as much as 28%6. This high dependency disasters in Brazil, which have devastated local freshwater resources means that future business growth depends increasingly on having in addition to the communities dependent upon them, demonstrates access to adequate volumes of water, something that can no longer in stark terms, the financial implications of poor governance. — Vale be guaranteed in many regions. Mining operations can also produce (VALE3 BZ) lost a quarter of its market capitalization — or nearly US$19 significant volumes of water, either through the ‘dewatering’ of billion — since its tailings dam collapse in January of 2019, killing KEY FINDINGS mines to access minerals below the water table or as a by-product more than 230 people8, Brazil’s most deadly mining accident9. While of extraction or processing. This water can be highly acidic and worsening water security did not lead to the failure of the dams, contain toxic amounts of metals or other pollutants which need to it was one of a number of devastating consequences. Worryingly, be disposed of safely and in adherence to local regulations7. The another dam operated by Vale, just 60km from the previous disaster Disclosure and transparency amongst companies in this sector has stagnated potential for this sector to detrimentally impact water quality – both is on the brink of collapse, threatening the lives and livelihoods of 10 { 5 years on from our last report on the sector, just 21 more companies disclose business critical water-related ground and surface water — is high, posing a significant risk to a some 30,000 residents in the town of Barão de Cocais . data to investors. In 2018, more than half (52%) of those requested chose not to disclose. A full list can be found in companies licence to operate. In 2018, CDP introduced sector specific questionnaires for high Appendix I. Tied to vast, local mineral reserves, companies in this sector do not impact sectors including food, beverage and tobacco, metals and have the luxury of transferring their operations to less challenging, mining, oil and gas, electric utilities and chemicals. For the metals more water secure environments. As such, they must work to align and mining sector, CDP is now able to provide investors with deeper Operating in this sector remains risky business and adapt their practices and procedures with the environmental insights into the number of tailings dams a company has in its constraints and objectives of the countries and communities housing control, along with the associated management processes and { In 2018, the majority of respondents (91%) reported exposure to water-related risks with an estimated financial them. The decisions they make about how to exploit these reserves, procedures in place to mitigate the inherent risks associated – the 4 impact totaling US$24.9 billion - 6% of the responding companies market capitalization . These risks are of will make or break a countries ability to achieve its water-related and only publicly available global repository of such information. immediate concern with the majority (61%) of the risks reported expected to materialize over the next three years. other sustainability and economic development goals. Some risks, such as those from tailings dam failures and pollution liabilities appear to be overlooked.

Over the last five years, the sector has been disproportionately impacted by water-related issues { In 2013, CDP analysis indicated that water security issues were already affecting the financial performance of responding companies. Analysis suggests that the situation remains the same, with just under half of respondents (44%), on average, having already suffered water-related financial losses amounting to US$11.8 billion over the last five years. This is disproportionately high compared with the cross-sector average of 27%.

Companies must ensure that water security issues are meaningfully embedded into corporate governance and strategy { Moving risk mitigation from reactionary site-specific interventions to enterprise-wide strategic decision making is an imperative to mitigate risk and ensure business continuity. It’s disappointing therefore that only 39% of respondents have board level oversight of water issues; integrate water into long term business objectives and have a publicly available water policy in place.

Tailings dam failures have catastrophic impacts on water security for people, places and profit { Avoiding tailings dam failures is a necessary requirement for improved water security and business continuity. For the first time, CDP is able to provide data and insight into the ways in which mining companies are responding to and managing tailings dam failure risk. A total of 806 tailings dams, either in operation or inactive, spanning 42 countries, were reported through CDP in 2018. And yet, our analysis indicates that just 26% (10) of respondents have any form of C-suite approval for tailings dams risk management procedures.

4 5 A HISTORY OF FINANCIAL IMPACTS

In 2013, CDP analysis indicated that water security issues Figure 1. % of companies reporting water-related financial impacts and associated financial values in US$ were already affecting the financial performance of Source: CDP water security data 2013 - 2018 US$ responding companies. Analysis of response data since then 80% US$7 million 11.8 billion suggests that the situation remains the same, with just under in financial impacts half of respondents (44%), on average, reporting financial 70% US$6 million impacts amounting to US$11.8 billion over the last five years. over the last five years 60% This is disproportionately high compared with the cross- US$5 million sector average of 27%. 50% US$4 million Water-related financial impacts materialize in a variety of ways. While for a halt in daily production is US$1 million/day and considers it a 40% the most commonly reported impacts include increased costs (both substantive amount that triggers the search for opportunities for US$3 million operational and capital) as well as production disruptions and fines, improved water management. 30% companies also report significant impacts related to intangibles, like US$2 million brand damage and constraints to growth. In 2018, the total combined value of the impacts reported via CDP 20% reached over US$6 billion – this is mostly accounted for by Vale’s 10% US$1 million In a capital intense sector where profitability is closely linked to (VALE3 BZ) quantification of the 2015 incident at the Mariana dam in productivity, unexpected impacts and operational disruptions hit the Brazil, amounting to US$5.1 billion. With just 17 of 24 respondents US$0 bottom line. Disruptions to production as a result of water scarcity is able to provide a financial figure for the water-related impacts they 0% a recurring theme. For example, Goldcorp - now Newmont Goldcorp have experienced in 2018, the actual total value of financial impacts 2013 2014 2015 2016 2017 2018 (NYSE: NEM), reported that the average financial loss of revenue experienced is underreported. % of companies impacted Total financial impact (US$)

Largest impacts by company reported through CDP and external sources in 2018

Total 2018 Water Figure 2. Driver of financial impact Figure 3. Top reported drivers of financial impact Source: CDP water security data 2018 Type of financial EBITDA related by type Company Country Description of impact11 Source: CDP water security data 2018 impact impact (US$ (million impact/ million) US$) EBITDA Flooding Flooding 4% Severe weather events In November 2015, the Fundao tailings dam owned Severe weather events by Samarco S.A. failed, flooding communities 20% and impacting the environment. Samarco and its Fines, Increased water scarcity Vale (VALE3 BZ) shareholders, Vale and BHP Brasil Ltda., entered into a Increased water scarcity penalties or 76% BHP Billiton Brazil 5139 settlement agreement on March 2016 with federal and 18913 27% enforcement Drought (BHP LN) state governmental authorities, creating a foundation to Drought orders develop and implement remediation and compensation programs over many years. The financial figure is likely to Declining water quality Declining water quality rise, with estimates put at US$ 39.9 billion. 0% 5% 10% 15% 20% 25% 0% 5% 10% 15% 20% 25% Physical % of total impact drivers reported % of total impact drivers reported In March of this year, Mexico’s second largest silver Regulatory mine owned by the newly merged Newmont-Goldcorp Newmont- Reputation & markets Figure 4. Top reported financial impacts Production suspended its operations due to community opposition Goldcorp (NYSE: Mexico 233 2584 9.0% Source: CDP water security data 2018 disruption over its excessive water use. Reports indicate a potential Increased operating costs NEM, TSX: NGT) Increased operating costs loss of 20 million ounces of silver a year, the equivalent of 12 US$233 million by current market price . Reduction or disruption Reduction or disruption in production in production Fines, penalties or Fines, penalties or enforcement orders Following a period of extreme rainfall which caused concern enforcement orders that flooding led to harmful bauxite spills, Norsk Hydro was Impact on company assets ordered by Brazilian authorities to operate its Alunorte plant Impact on company assets Impact on Norsk Hydro at 50 percent of its capacity. Alunorte is Norsk Hydro’s Brazil company 174.2 15796 1.1% (NHY NO) largest alumina refinery - and one of the largest in the world. Disruption of sales assets Disruption of sales The financial figure disclosed refers to loss of revenue in Q2 of 2018 and the company reports that it is uncertain when 0% 5% 10% 15% 20% 25% 0% 5% 10% 15% 20% 25% production will revert to normal levels. % of total impacts reported % of total impacts reported

6 7 OPERATING IN THIS SECTOR REMAINS RISKY MITIGATION COSTS ARE LIKELY TO RISE BUSINESS

Greater demand for resources and extraction of mineral reserves in often water-scarce According to a 2013 report by Moody’s15, 70% of the mines of the six biggest companies locations where a stable supply of water is no longer guaranteed, continues to jeopardize are in countries with high or moderate water stress, along with two-thirds of projects being existing and future operations. developed. As such, the company issued a warning that water scarcity could increase rating pressure on global mining companies. Although not a direct comparison given the difference in sample constituents, the perception of risk drivers in 2013 differs markedly In water scarce regions, miners face a new business reality of to expand operations in Chile with current water availability and in some important ways. Noteworthy is the absence in 2018 of US$ financial value weighing up the economics of large-scale capital investments in allocation. This represented over 70% of its total capital expenditure reputational damage, community opposition and a broader range of at risk alternative water resourcing to mitigate risks, such as desalination in 2018. And Anglo American (AAL LN) estimate costs associated with 24.9 billion regulatory responses such as higher water pricing, water withdrawal plants, against the value of ore reserves, or the prospect of extending water management at three of its North American sites to be US$100 regulation and constraints to operating permits. mines’ useful lifetimes. For miners, whose spending on water, million annually due to impacts associated with water quality. The financial implications of the risks reported through CDP are according to EY, increased from US$3.4 billion in 2013 to nearly US$12 anticipated to be significant, with the combined value at risk hitting billion in 2014 — a 250% increase16 — costs are likely to keep rising. Many regulators are revisiting, re-evaluating and re-positioning water African Rainbow Minerals (ARI SJ) for example report exposure US$24.9 billion, representing 6% of the reporting companies aggregate management regulations, often tightening requirements and thus to water scarcity issues in South Africa that have the potential value12. Just one company alone, Vale (VALE3 BZ), accounted for more CDP’s data suggests that this trend in water-related investment increasing the costs of compliance for companies operating in or to disrupt production. The company was hit by this issue back than a third of this value at risk, citing in its CDP response a potential holds true. In 2018, 44% of respondents anticipate an increase in buying from these markets. This means companies can no longer in 2017, when 3-4 weeks of production were lost due to water US$8.4 billion reduction in revenue due to climate driven water stress water-related capital expenditure and 33% anticipate future increases undertake a project and later spend more when a water problem supply interruptions, resulting in US$100 million of lost revenue. in the São Luis region of north-eastern Brazil. in water-related OPEX. For POSCO (005490 KS), its water-related arises. Now, as with Barrick Gold’s (ABX CN) Pascua Lama Mine, investment represented more than a quarter of its total operational miners need to demonstrate how operations will maintain local water Water security risks are an immediate concern for the majority (91%) expenditure in 2018. supplies before they can start operating. Harmony Gold Mining Co Ltd (HAR SJ) report that intermittent of respondents in the sector. In 2018: water supplies in South Africa pose a significant threat to its In 2018, 54 companies report a combined US$6 billion of estimated The result is that “projects will take longer to complete, be costlier { operational continuity and profitability. A halt in operations at one 287 water-related risks that could lead to substantive business costs for water risk mitigation, representing 14% of their combined and riskier, with credit-negative implications for the entire industry” site results in US$200,000 revenue losses per day. In response, impairment were reported; capital expenditure for the year17. Given that more than half (59) of according to Moody’s Investors Service. According to the report, the company has adopted a group-wide campaign to re-use companies requested to disclose to CDP chose not to, this figure is “environmental factors, such as water scarcity, could adversely affect { 61% of these risks are expected to materialize in the next three process water in order to reduce dependency on groundwater. years; and likely to eclipse that reported by EY in 2014. Freeport-McMoRan Inc the ratings of global mining companies if they fail to proactively (FCX US) for example, estimate the cost of a new desalination plant manage the accompanying operational and political risks to their { 50% of the risks are classed as high likelihood, with 30% and 20% Lonmin (LMI LN) cite that increases in water tariffs, estimated and delivery pipeline to be US$1.4 billion, in response to their inability businesses.” ranked as low and medium probability respectively. company-wide to be over US$450,000 per year, have a direct impact on its operating costs and pose a risk to the sustainability These risks are anticipated to lead to substantive production of its business. As the cost of their product is fixed, it is unable disruption, increased operating costs as well as a plethora of fines, to account for the increase in operating cost and thus has a penalties and enforcement orders. Interestingly, infrastructure direct impact on its profit. In response, it is committed to the failings, such as tailings dam collapse, were not identified as a risk by continuous improvement of its water use efficiency and between respondents. Further, pollution liabilities were the lowest ranked risk 2012 and 2017 it achieved an 11% improvement. of all – surprising given the cumulative effect pollution incidents have and its threat to maintaining a license to operate.

Figure 5. Top reported risk drivers and associated timeframe of potential impact13

Flooding

Increased water scarcity

Increased water stress

Drought

Severe weather events

Inadequate infrastructure

Declining water quality

Pollution incident

Regulation of discharge quality/volumes

Ecosystem vulnerability

% of risks reported 0% 2% 4% 6% 8% 10% 12% 14% 16%

8 Current up to one year 1-3 years 4-6 yearsMore than 6 yearsUnknown 9 THE TAILINGS DAMS ISSUE

While worsening water security is generally not a dominant driver of tailings dam failures, Recognizing the importance of standardized and comparable By far the most important aspect of tailings dam management information, CDP introduced a set of sector specific questions in however is corporate governance and oversight. Yet despite this, of the consequences of tailings dam failures for the water security of the people and 2018, designed to facilitate transparency and accountability on this the companies reporting to CDP in 2018: environment downstream of the dam, and the subsequent impact this has on corporate issue. Data users can explore by river basin and country the number { valuation, can be catastrophic. Given CDP’s mission to improve water security and establish of active and inactive tailings dams a company has in its control, Just 26% report tailings dams risk management procedures that have any form of approval by a C-suite officer. a thriving economy that works for people and planet, shining a light on the ways in which along with the associated management processes and procedures in place to mitigate the inherent risks associated. In 2018, CDP mining companies govern tailings dams is important to our mission. respondents disclosed more than 347 tailings dams in operation Given the severity of the risks associated with a tailings dam failure, with a further 459 inactive tailings dams under control, spanning strategic oversight and accountability is vital to ensuring effective risk Used to store the by-products of mining operations such as ground-up was then Brazil’s worst environmental disaster, we find ourselves 42 countries. A database of this information, the first of its kind, is mitigation and demonstrating serious commitment to the issue. rock or sand along with the often-toxic chemical reagents and process here again. In January of 2019, an earth embankment tailings dam available on CDP’s investor portal. water used to extract the given commodity, are tailings ponds, often operated by Brazilian mining company Vale failed, killing 308 people, A step in the right direction has been the response from The 18 more like lakes that can be square-kilometres in size . The integral causing untold environmental damage and wiping out US$19 billion Implementing strong and comprehensive management International Council on Mining and Metals, an industry trade group. 22 structure that holds this waste in place is known as a tailings dam, in the company’s market value . The not-for-profit organization procedures and controls is essential to avoid catastrophic social It has announced that an international standard will be developed for 25 often an earth-filled structure or built from the sand or rock generated WorldMineTailingFailures.org suggests that the upward trend of high- and environmental consequences of tailings dam failings. Of the the design, construction, maintenance and closure of tailings dams . in the mining operation. The design and construction of the tailings severity tailings failures is indisputable. The organization, which has respondents disclosing tailings dam information, encouragingly This will likely mean an increase in capital expenditure to meet these dam must ensure it stands in perpetuity. According to Bowker and built a global repository of all failure events, states that “without major 100% report having procedures in place to manage potential new independently verified standards. South32 (S32 AU) for example 19 Chambers (2015) , tailings dams have a failure rate significantly higher changes to law and regulation, and to industry practices, and without impacts to human health or water ecosystems. reported a projected US$57 million capital expenditure on tailings than conventional water retention dams principally for two reasons. new technologies that substantially reduce risk and increases loss management in its first half yearly report for 2019. This is in stark The first being the construction materials used are more susceptible to control, current prediction is for 19 Very Serious Failures between Of the respondents with tailings dams under control: contrast to the company’s half-year reports for 2017 and 2018, which failure, and the second that tailings dams are constructed in sequential 2018 and 2027.”23 did not mention tailings management or dams at all27. ‘lifts’ over several years that make quality control more challenging20. A { 80% have an operating plan to manage potential risks; high degree of surveillance and maintenance is needed both during its Companies associated with the operation of tailings dams have come For investors wishing to engage on this topic, Appendix I, at the end { 64% have either site level or company-wide guidance and operation and long after the mining operation has shut down when the under increased scrutiny from investors into the processes they have of the report, provides a company by company snapshot against standards on acceptable risk levels; and generation of cash flow and profit has ceased21. in place to manage the risks associated. In April of 2019, a group KPI’s for the sector. One such KPI is whether a company reported of 96 investors with US$10.3 trillion in assets demanded increased { 61% have an assurance program in place to ensure sites are C-Suite oversight and assurance of tailings dam’s management. Less than four years on from the Samarco tailings dam collapse, a transparency and disclosure from more than 683 listed extractives audited to required standards. joint venture between Vale (VALE3 BZ) and BHP Billiton (BHP LN), what companies on this issue24.

Fig 6: Very serious and serious tailing storage facility failures 1958-2017 Fig 7: Number of tailings dams reported per country through CDP in 2018 Source: World Mine Tailings Failures.org August 2018

10 11 THE EVOLUTION OF WATER RISK MITIGATION STRATEGIES

CDP has defined five critical aspects of corporate water management for the metals Figure 8: Sector response status breakdown and mining sector as a proxy of effective water risk mitigation. These are metrics that any investor can use to engage with a company and are aligned with CDP’s scoring 57% methodology. 4/7 53% 50% 50% 50% 8/15 48% 21/42 2/4 1/2 12/25 43% 40% Transparency: 3/7 1 Measurement, transparency and accountability are the essential tools that enable the global community to track 2/5 and assess the progress being made toward a water-secure world.

Governance and strategy: 2 Given the fundamental importance of water to the sector, robust water governance is essential. Water-related issues need to be embedded into corporate governance mechanisms and long-term business objectives. 17% 1/6 Measuring and monitoring: 3 Robust water accounting data is necessary to inform business planning and forecasting as well as risk identification and response. As the saying goes, what gets measured gets managed.

Risk assessment: Aluminum refining Other non-ferrous metals & ore mining Precious metals & minerals mining Coal extraction & processing Other non-metallic minerals Iron & steel Iron ore mining Copper Metal processing 4 A company considering its water use alongside the physical, regulatory, social, environmental and temporal context within which it operates, has a far greater chance of understanding and enhancing its resilience.

Targets and goals: Figure 9: Independent analysis from NBIM - CDP and quality of reporting 5 Companies must set and achieve ambitious targets to reduce impacts on water availability and quality. % of companies per NBIM score bracket having responding to the CDP water security questionnaire in 2018

100% Transparency 90% 80% of respondents respond to investor requests for information via CDP25 48% 70% In the five years since our last report, CDP has increased the number of companies invited to provide business critical water-related data to 60% investors (113 in 2018, up from 69 in 2013). In the same period, we have seen an increase in the number of companies responding, although not CDP 50% in the same order of magnitude (54 up from 33). Non-CDP

While the growth should be celebrated, it is important to reflect on the make-up of those companies not responding. Since 2013, some of the 40% larger market participants, including BHP Billiton (BHP LN), Barrick Gold Corporation (ABX CN), Fortescue Metals Group (FMG AU), Imerys (NK FP) and Rio Tinto (RIO AU) have stopped responding to investor requests for information via CDP. With the response rate sitting at 48% in 2018, more 30% than half of respondents failed to disclose critical water information to their investors. 20% Although some of these companies are reporting water-related data in CSR reports, our analysis of this data suggests that it is rarely comparable, complete or consistent. Independent analysis from Norges Bank Investment Management (Fig 9), one of the world’s largest 10% sovereign wealth funds, suggests that companies disclosing through CDP verses in CSR Reports, outperform both in terms of data quality and water performance. There is a need for investors to insist that companies start or continue disclosing through CDP to ensure the availability of 0% robust, comparable and actionable data. Relatively Relatively Weak Average Strong weak strong

12 13 CONCLUSION

Governance & Strategy

{ Board-level oversight of water issues; of respondents have: { Integrated water into long-term business objectives; and 39% { A publicly available water policy While there has been some progress since CDP’s sector Moving risk mitigation from reactionary site-specific interventions to enterprise-wide strategic decision making is an imperative to mitigate risk assessment in 2013, the pace and scale of change is and ensure business continuity. Having board-level oversight of water issues; integrating water into long term business objectives and having a insufficient to deal with the water security challenges that the publicly available water policy in place are the key steps companies can take to drive the strategic mitigation of water-related issues from the top sector is facing both today and in the future. down. Only 39% of respondents including Alcoa Corp. (AA US), Glencore plc (GLEN LN) and PanAust (PNA AU) have all of these elements in place. CDP’s analysis indicates that companies in the metals and mining sector remain exposed to a For the first time in 2018, we are able to assess just how many companies in the sector are rewarding C-Suite officers for performance on variety of large, short-term, high probability risks. These risks are driven by the physical effects of water-related issues. Encouragingly, over half (55%) cited the use of such incentives, more than the cross-sector average of 31%. At Anglo worsening water security, the impacts the companies themselves have on water security and the American Platinum (AMS SJ), water-specific indicators are embedded into the CEO’s performance contract and those of other C-Suite government, community and civil society response to this. The disconnect between the worldwide employees which represents 4% of the yearly bonus. Whereas for Centamin plc (CEY LN) the performance bonus for the CEO is directly linked to increase in the number of tailings dam failures, the lack of reporting of this risk by respondents the year-on-year increase in the rate of water recycling. and the low levels of C-Suite accountability for tailings dam assurance, suggests that companies may be unprepared for significant, water security risks. Whilst flooding dominates the risk perception of the sector, and indeed, has been the water-related issue that has resulted in most financial losses to date, it is noteworthy that tailings dam failures, tightening of water regulations and loss of social licences to operate, fail to register as dominant risk drivers. In addition, that Measuring and monitoring risks associated with water pollution incidents are perceived by just a handful of companies is also interesting, particularly given that it was concerns over Barrick Golds impact on ground water quality that lead to the stranded asset that is the US$8.5 billion Pascua Lama Mine. of respondents measure and monitor all water aspects at 75% of sites Water-related transparency is a fundamental step in transforming this situation and the reasons 80% are straightforward. Less information means less certainty for investors. When a company is Encouragingly, the vast majority of responding companies report that they have strong measurement and monitoring practices in place. This not transparent about how it is addressing water security issues, investors can never be sure rate is significantly higher than the cross-sector average of 59%, reflecting the critical importance of water to mining activities. about a company’s real fundamentals and true risk. For instance, a firm’s growth prospects are intrinsically tied to its ability to secure reliable access to a stable supply of water; to its efforts Taking into account that just under half (40%) of respondents cite that 100% of their facilities are exposed to substantive water risk, innovation to eliminate pollution and avoid infrastructure failings; not to mention its success in gaining and around improving efficiency and reducing dependency is key. 41% of companies including Agnico-Eagle Mines Limited (AEM CN), Goldcorp maintaining the trust and confidence of the local communities housing each mine. How the Inc. (G CN) and Teck Resources Limited (TECK/A CN) reported that they recycle or reuse more than half of water withdrawn. To put this into firm accounts for water issues in its growth strategies and whether it invests in solutions is vital perspective, only 10% of respondents within all other sectors recycle or reuse more than half of water withdrawn. information. It is difficult, if not impossible, to evaluate a company’s investment performance if its investments in and governance of water security issues are hidden from view.

The World Bank recently highlighted the vital role the metals and mining sector will play in Risk assessment providing the resources needed for the low carbon transition. Increasing competition for the worlds finite amount of freshwater, coupled with more extreme weather means water crises are set to become more likely. To succeed, companies in the sector must find new ways of doing of respondents conduct a regular risk assessment including river basin management business, ways that decouple production and consumption from the depletion of water resources. authorities Incremental changes, acting a little more efficiently or a little more collaboratively, will not cut it. 76% Companies that transform their business and work to safeguard valuable water resources have The majority of respondents (76%) report that they conduct regular water-related risk assessments that include important local actors such as the potential for both short and long-term cost savings, sustainable revenue generation and a river basin management authorities. Gold Fields Limited (GFI SJ) for example, recognize engagement with local communities as an essential more resilient future. Investors, beneficiaries of resilient successful businesses, are expected to element of its risk assessment in order to ensure its social licence to operate. Whereas Lonmin (LMI LN) work collaboratively with other water enable and support this transformation. users in the catchments where they operate to mitigate the potential risk of conflict regarding water availability in already water stressed areas.

Targets and goals 46% of respondents set targets and goals that are monitored at the corporate level Given that 91% of respondents in this sector report exposure to substantive water risk, it’s disappointing that under half (46%) are setting water targets and goals that are monitored at the corporate level.

Companies must set and achieve ambitious targets to reduce impacts on water availability and quality. Targets can be set at different levels within the company from facilities to business activities to regions, but all should be tracked at the corporate level. This allows the targets to be incorporated into the company’s overall strategy and KPIs, enhancing the chance of success. Impala Platinum Holdings (IMP SJ) for example implemented a company- wide, year-on-year rolling target of a 40% increase in water recycling in response to worsening water security effecting its operations. The company reports that reducing its demand for freshwater will enhance its own resilience against water insecurity, as well as that of local communities. Whereas Lonmin (LMI LN) set a company-wide target for all operations to reduce water withdrawals by 15%. By setting this target at the corporate level, the company reports that it is able to effectively monitor progress at site level and allocate capital to initiatives needed to meet the target. 14 15 REFERENCES

1. https://www.cdp.net/en/investor

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3. CDP defines water security as “the reliable availability of an acceptable quantity and quality of water for health, livelihoods, environment and production, coupled with an acceptable level of water-related risks.”

4. Source: Bloomberg market cap data

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11. Based on edited company responses to the CDP 2018 water security questionnaire with additional insights from external sources.

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14. Source: Bloomberg market cap data

15. https://www.moodys.com/research/Moodys-Water-scarcity-could-increase-rating-pressure-on-global-mining--PR_266225

16. https://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY-Business- risks-facing-mining-and-metals-2014%E2%80%932015.pdf

17. Source: Bloomberg capital expenditure data

18. https://gridarendal-website-live.s3.amazonaws.com/production/documents/:s_document/371/original/RRA_MineTailings_lores. pdf?1510660693

19. Bowker Chambers (2015) Bowker, L.N. and Chambers, D.M. The Risk, Public Liability, and Economics of Tailings Storage Facility Failures. Earthworks Action 2015.

20. http://www.csp2.org/files/reports/Bowker%20%26%20Chambers%20-%20Risk-Public%20Liability-Economics%20of%20Tailings%20 Storage%20Facility%20Failures%20–%2023Jul15.pdf

21. http://www.csp2.org/files/reports/Long%20Term%20Risks%20of%20Tailings%20Dam%20Failure%20-%20Chambers%20%26%20 Higman%20Oct11-2.pdf

22. https://uk.reuters.com/article/us-vale-sa-disaster-stocks/vale-stock-plunges-after-brazil-disaster-19-billion-in-market-value-lost- idUKKCN1PM1JP

23. https://worldminetailingsfailures.org/

24. https://www.environmental-finance.com/content/news/investors-set-deadline-for-mining-companies-to-supply-tailings-disclosures. html?utm_source=080419na&utm_medium=email&utm_campaign=alert

25. https://www.reuters.com/article/us-mining-conference-tailingsdams/mining-industry-to-set-global-tailings-dam-standards- idUSKCN1QF27L

26. https://www.australianmining.com.au/news/south32-puts-tailings-management-front-and-centre/

27. The world’s largest publicly listed companies on the MSCI ACWI in the metals and mining sector

28. https://www.worldbank.org/en/news/infographic/2019/02/26/climate-smart-mining

16 17 APPENDIX I See p.12-14 for metric methodologies ENGAGEMENT TOPICS PER COMPANY

Acacia Mining United Kingdom Not submitted NA Precious metals & minerals mining 552 ACA LN F African Rainbow Minerals South Africa Submitted Public Iron ore mining 1988 ARI SJ B NO YES YES YES NO YES Agnico-Eagle Mines Limited Canada Submitted Public Precious metals & minerals mining 8073 AEM CN C NO YES NO NO NO NO Alacer Gold Turkey Not submitted NA Precious metals & minerals mining 612 AQG AU F Alamos Gold Inc. Canada Not submitted NA Precious metals & minerals mining 1739 AGI CN F Alcoa Corp. United States of America Submitted Public Aluminum 6408 AA US B- YES YES YES YES NO NO Alrosa Company Ltd Russian Federation Not submitted NA Precious metals & minerals mining 11575 ALRS RM F Alumina Australia Submitted Public Aluminum 5998 AWC AU D YES YES YES YES NO NO Aluminium Bahrain BSC Bahrain Not submitted NA Aluminum 1615 ALBH BI F Aluminum Corporation of China China Not submitted NA Metal processing 4997 2600 HK F Anglo American United Kingdom Submitted Public Precious metals & minerals mining 29130 AAL LN A- YES YES YES YES NO NO Anglo American Platinum South Africa Submitted Public Precious metals & minerals mining 8340 AMS SJ A- YES YES YES YES NO NO AngloGold Ashanti South Africa Submitted Public Precious metals & minerals mining 3439 ANG SJ B- NO YES YES YES NO NO Antofagasta United Kingdom Submitted Public Other non-ferrous ore mining 10323 ANTO LN C NO YES YES YES NO NO Arcelor Mittal South Africa Ltd South Africa Not submitted NA Iron & steel 501 ACL SJ F ArcelorMittal Luxembourg Submitted Public Iron & steel 30941 MT NA B- NO YES YES NO NO NA Assore Ltd South Africa Not submitted NA Iron ore mining 3036 ASR SJ F Aurubis AG Germany Not submitted NA Copper 3005 NDA GR F Barrick Gold Corporation Canada Not submitted NA Precious metals & minerals mining 12231 ABX CN F Beadell Resources Australia Not submitted NA Precious metals & minerals mining 116 BDR AU F Bengang Steel Plates Co. Ltd. China Not submitted NA Metal processing 1154 000761 CH F BHP Australia Not submitted NA Iron ore mining 115927 BHP LN F BlueScope Steel Australia Not submitted NA Iron & steel 6961 BSL AU F Boliden Group Sweden Not submitted NA Copper 7167 BOL SS F BORUSAN MANNESMANN Turkey Not submitted NA Metal processing 194 BRSAN TI F BORU SANAYİ VE TİCARET A.Ş. Centamin plc United Kingdom Submitted Public Precious metals & minerals mining 1439 CEY LN B- NO NO NO YES NO NO China Steel Corporation Taiwan, Greater China Submitted Public Iron & steel 12884 2002 TT B YES YES NO YES NO NA Cia. Siderurgica Nacional - CSN Brazil Submitted Non public Iron & steel 2995 CSNA3 BZ D Private Private Private Private Private Private Coeur d’Alene Mines United States of America Not submitted NA Precious metals & minerals mining 1512 CDE US F Corporation Daido Steel Co., Ltd. Japan Not submitted NA Iron & steel 1974 5471 JP F Detour Gold Corporation Canada Not submitted NA Precious metals & minerals mining 1517 DGC CN F Eldorado Gold Corporation Canada Submitted Public Precious metals & minerals mining 529 ELD CN C NO NO NO YES NO NO EREĞLİ DEMİR VE ÇELİK Turkey Not submitted NA Iron & steel 6258 EREGL TI F FABRİKALARI T.A.Ş. Evolution Mining Australia Not submitted NA Precious metals & minerals mining 3241 EVN AU F Evraz PLC Russian Federation Not submitted NA Iron & steel 10090 EVR LN F First Quantum Minerals Limited Canada Submitted Non public Other non-ferrous ore mining 8655 FM CN B- Private Private Private Private Private Private Fortescue Metals Group Australia Not submitted NA Iron ore mining 8647 FMG AU F

18 19 See p.12-14 for metric methodologies

Freeport-McMoRan Inc. United States of America Submitted Public Copper 20342 FCX US C NO YES YES NO NO YES Fresnillo plc Mexico Submitted Public Precious metals & minerals mining 8593 FRES LN C YES YES YES YES NO NO Gerdau S/A Brazil Not submitted NA Iron & steel 6420 GGBR4 BZ F Glencore plc Switzerland Submitted Public Coal extraction & processing 59427 GLEN LN B YES YES YES YES YES YES Gold Fields Limited South Africa Submitted Public Precious metals & minerals mining 2019 GFI SJ B NO YES YES YES NO YES Goldcorp Inc. Canada Submitted Public Precious metals & minerals mining 9375 G CN B- YES YES NO YES NO NO (now Newmont Goldcorp) Grupo Mexico S.A.B. de CV Mexico Not submitted NA Copper 22809 GMEXICOB MM F Harmony Gold Mining Co Ltd South Africa Submitted Public Precious metals & minerals mining 826 HAR SJ B NO YES YES YES NO NO Hindalco Industries India Not submitted NA Aluminum 7532 HNDL IN F Hindustan Zinc India Submitted Public Other non-ferrous metals 17284 HZ IN B YES YES NO NO YES NO Hitachi Metals, Ltd. Japan Submitted Non public Iron & steel 5154 5486 JP B- Private Private Private Private Private Private HudBay Minerals Inc. Canada Submitted Public Other non-ferrous ore mining 1464 HBM CN C NO NO NO NO NO NO Hyundai Steel Co Republic of Korea Not submitted NA Iron & steel 6487 004020 KS F IAMGOLD Corporation Canada Submitted Non public Precious metals & minerals mining 1760 IMG CN C Private Private Private Private Private Private Iluka Resources Australia Not submitted NA Other non-ferrous metals 2932 ILU AU F Impala Platinum Holdings South Africa Submitted Public Precious metals & minerals mining 1470 IMP SJ Not available NO NO YES YES YES NO Independence Group Australia Submitted Public Precious metals & minerals mining 1808 IGO AU Not scored NO NO NO NO NO NA Ivanhoe Mines Canada Submitted Public Coal extraction & processing 1567 IVN CN C NO YES YES NO NO NO JFE Holdings, Inc. Japan Submitted Non public Iron & steel 13473 5411 JP B Private Private Private Private Private Private JSW Steel India Not submitted NA Iron & steel 13517 JSTL IN F KARDEMİR KARABÜK DEMİR Turkey Not submitted NA Iron & steel 699 KRDMD TI F ÇELİK SANAYİ VE TİCARET A.Ş. KAZ Minerals Kazakhstan Submitted Public Copper 2833 KAZ LN D- NO NO NO NO NO NO KGHM Polska Miedź S.A. Poland Not submitted NA Other non-ferrous ore mining 4934 KGH PW F Kingsgate Consolidated Australia Not submitted NA Precious metals & minerals mining 117 KCN AU F Kinross Gold Corporation Canada Not submitted NA Precious metals & minerals mining 3754 K CN F Kobe Steel., Ltd. Japan Submitted Non public Iron & steel 3057 5406 JP C Private Private Private Private Private Private Korea Zinc Co Ltd Republic of Korea Not submitted NA Other non-ferrous metals 6874 010130 KS F KOZA ALTIN İŞLETMELERİ A.Ş. Turkey Not submitted NA Precious metals & minerals mining 1087 KOZAL TI F KOZA ANADOLU METAL Turkey Not submitted NA Coal extraction & processing 343 KOZAA TI F MADENCİLİK İŞLETMELERİ A.Ş. Kumba Iron Ore South Africa Submitted Public Iron ore mining 6325 KIO SJ B- YES YES YES YES NO NO Lonmin South Africa Submitted Public Precious metals & minerals mining 157 LMI LN A- NO YES NO YES YES NO Lynas Corporation Australia Not submitted NA Coal extraction & processing 888 LYC AU F Mahindra Sanyo Special Steel India Submitted Public Aluminum 0 0821582D IN B- NO NO NO NO NO NA Pvt. Ltd Maruichi Steel Tube Ltd. Japan Not submitted NA Metal processing 2887 5463 JP F Medusa Mining Australia Not submitted NA Precious metals & minerals mining 110 MML AU F Mitsubishi Materials Japan Submitted Public Copper 3743 5711 JP C NO YES NO YES NO NO Corporation 20 21 See p.12-14 for metric methodologies

Company name Country HQ Response status Access Activity Market Cap (US$ million) Ticker CDP water security score strategy and Governance assessmentRisk Experienced water detrimental financial impactrelated Reports risks expected to materialize in next 3 years Targets and goals assurance and oversight C-Suite management dams tailings of MMC Norilsk Nickel OSJC Russian Federation Not submitted NA Other non-ferrous ore mining 27188 GMKN RM F New Gold Inc. Canada Not submitted NA Precious metals & minerals mining 478 NGD CN F Newcrest Mining Australia Submitted Non public Precious metals & minerals mining 10762 NCM AU Not scored Private Private Private Private Private Private Newmont Mining Corporation United States of America Submitted Public Precious metals & minerals mining 16554 NEM US B NO YES YES NO NO NO (now Newmont Goldcorp) Nexa Resources SA Brazil Submitted Non public Coal extraction & processing 1468 NEXA CN Not scored Private Private Private Private Private Private Nippon Steel & Sumitomo Japan Submitted Non public Iron & steel 19159 5401 JP B- Private Private Private Private Private Private Metal Corporation Nisshin Steel Holdings Co., Ltd. Japan Not submitted NA Iron & steel 1551 5413 JP F Norsk Hydro Norway Submitted Public Aluminum 11946 NHY NO B- YES YES YES NO NO YES Northam Platinum Ltd South Africa Submitted Public Precious metals & minerals mining 1279 NHM SJ B- YES YES NO YES NO NO Nucor Corporation United States of America Not submitted NA Metal processing 20444 NUE US F PanAust Australia Submitted Public Coal extraction & processing 744 PNA AU C YES NO NO YES NO YES Petropavlovsk Plc Russian Federation Not submitted NA Precious metals & minerals mining 274 POG LN F Polyus PJSC Russian Federation Not submitted NA Precious metals & minerals mining 8672 PGIL LN F POSCO Republic of Korea Submitted Public Iron & steel 25573 005490 KS A- NO YES YES YES YES NA Ramelius Resources Australia Not submitted NA Precious metals & minerals mining 52 RMS AU F Randgold Resources United Kingdom Submitted Non public Precious metals & minerals mining 6158 RRS LN B- Private Private Private Private Private Private (now New Barrick Group) Resolute Mining Australia Not submitted NA Precious metals & minerals mining 570 RSG AU F Rio Tinto United Kingdom Not submitted NA Iron ore mining 84634 RIO AU F Royal Bafokeng Platinum Ltd South Africa Submitted Public Precious metals & minerals mining 668 RBP SJ B YES YES NO YES YES NO Sandfire Resources NL Australia Submitted Public Precious metals & minerals mining 763 SFR AU C YES YES NO NO NO NO Saracen Mineral Holdings Australia Submitted Public Precious metals & minerals mining 1037 SAR AU C NO NO NO YES NO YES SeverStal PAO Russian Federation Not submitted NA Iron & steel 13508 SVST LI F Sibanye Stillwater South Africa Not submitted NA Precious metals & minerals mining 1409 SGL SJ F Silver Lake Resources Australia Not submitted NA Precious metals & minerals mining 71 SLR AU F Sims Metal Management Australia Submitted Public Iron & steel 1877 SGM AU C NO YES NO NO NO NA South32 Australia Submitted Public Aluminum 14328 S32 AU B- YES YES NO YES NO NO Southern Copper Corporation United States of America Not submitted NA Other non-ferrous ore mining 33734 SCCO US F SSAB Sweden Not submitted NA Iron & steel 4271 SSABA SS F Sumitomo Metal Mining Co., Ltd. Japan Submitted Public Metal processing 9415 5713 JP B YES YES NO YES NO YES Tata Steel India Submitted Public Iron & steel 9538 TATA IN B- YES YES YES NO YES NA Teck Resources Limited Canada Submitted Public Other non-ferrous ore mining 14003 TECK/A CN B- NO NO NO NO NO YES thyssenkrupp AG Germany Submitted Non public Commercial services 14421 TKA GR C Private Private Private Private Private Private Troy Resources Australia Not submitted NA Precious metals & minerals mining 68 TRY AU F United States Steel Corporation United States of America Not submitted NA Metal processing 4888 X US F Vale Brazil Submitted Public Iron ore mining 73237 VALE3 BZ C NO YES YES NO NO NO Vedanta Ltd India Not submitted NA Copper 11934 VEDL IN F Vedanta Resources PLC United Kingdom Not submitted NA Copper 1615 VED LN F Voestalpine AG Austria Submitted Public Iron & steel 7928 VOE AV B- YES YES NO NO YES NO 22 Yamato Kogyo Co., Ltd. Japan Not submitted NA Iron & steel 1914 5444 JP F 23 Zijin Mining Group Co., Ltd China Not submitted NA Precious metals & minerals mining 8607 601899 CH F DISCLOSURE INSIGHT ACTION

For more information please contact:

CDP Water Security Board of Trustees Cate Lamb Alan Brown (Chair) Director Jane Ambachtsheer James Lott Jeremy Burke Manager Stephen Chow Daniel Chico Katherine Garrett-Cox Manager Rachel Kyte Orlaith Delargy Christine Loh Manager Sonia Medina

CDP North America Annise Parker Mukundan Ramakrishnan Christina Copeland Senior Manager Jeremy Smith Takejiro Sueyoshi Martin Wise

Our sincere thanks are extended to: Individuals Elena Espinoza, Monika Freyman, Prof. Nadja Kunz, Sean Allen and Prof. Upmanu Lall

Organizations Alcoa Foundation, CERES, Church of England Pension Fund, Columbia University, International Union for Conservation of Nature, Norges Bank Investment Management, Principles for Responsible Investment, The University of British Columbia

CDP Worldwide Level 4 60 Great Tower Street London EC3R 5AD Tel: +44 (0) 20 3818 3900 [email protected] www.cdp.net